Have a plan if you choose to support your adult children

TBO.com Staff

Published: June 12, 2011

Updated: March 21, 2013 at 04:43 PM

A question for parents of adult children: How many of you are providing — or have provided — them with some sort of financial support? Maybe they live at home or you subsidize their rent or you help them out in an emergency.
If a recent piece of research is any indication, just under two-thirds of you are raising your hands right now. The National Endowment for Financial Education recently surveyed 683 adults, ages 18 to 39, and 391 parents of adults in that age range. Forty-two percent of the adults said they are receiving or have received financial help from their parents, and 59 percent of parents said they've given it.
The research is quick to point out that these are not students. But are they recent graduates? Sort of, says Ted Beck, the president of the NEFE. "Statistically, about 75 percent of the respondents are in the 18 to 34 age group, so it definitely skews younger. But by going older, to age 39, we also captured people who had to move home or receive assistance for reasons of divorce, the loss of a spouse or job."
So what do you do if your kids need your help or a roof over their heads? Here are some guidelines for assisting them:

Assess the situation. Listen, there are financial emergencies, and then there are struggles that are almost a right of passage. If your kid can't afford food, obviously, some assistance is necessary. If he can't afford his current lifestyle, but adjustments can be made that will allow him to remain independent, that's an entirely different story. Of those parents surveyed by NEFE, 37 percent said they are providing financial assistance to their children because they don't want them to struggle the way they once did. But some measure of struggle is actually good. You have to toe the line between helping your kids out of a bad situation and making a comfortable lifestyle easy for them.
Set some ground rules. If you've decided help is necessary, you need to sit down and talk through what, exactly, that means. Are you giving them money every month? Will they be moving back into their old room? Both? And, most important, do you expect to be paid back? One piece of great news that came out of NEFE's research is that 75 percent of the adult children who live or have lived with their parents contributed something financially.
Make it formal. Yes, I'm talking about a contract. Beck and Dr. Robi Ludwig, a psychotherapist in New York, said having a written agreement is a must. Make sure the document includes an end date — when they'll move out or when your financial assistance will stop — as well as detailed information about what you are contributing, what they are contributing in return, and whether and how you'll be repaid for your assistance. "The reality is that there is always room for miscommunication when people are in a needy place, because they hear what they want to hear. So you really need to draft something up, sign it, refer to it and keep it," explains Ludwig. The contract should also require them to take steps toward independence by saving some money each month.
Help out in other ways. Maybe you don't have the money or space to assist. If that's true, think of other ways you can help your adult children, says Ludwig. "You can be emotionally supportive, help them strategize their next move and help them network." Use your connections if you think you can help land him or her a job, or offer to watch your grandchildren so parents can work weekends and bring in more money.
Don't compromise your retirement. One of the most jarring NEFE findings, at least to me, is that 26 percent of parents have taken on debt to provide assistance to their adult children, and 28 percent have had to use money from savings, investments or their retirement. This is not an option. It not only will set you back financially, but also could end up hurting your kids more than helping them, because down the line, when you're not prepared for retirement, you may need to rely on them for financial assistance. If you can't lend a hand without borrowing from your future or taking on debt, opt to assist them in one of the ways mentioned above.